Barney Frank's Turn at Bat

Congressman Barney Frank from Massachusetts is not worth a blog. That goes
for his recent proposal, too. It is worth a moment to understand the inconsequentiality
of Frank's mischief and, more importantly, the amount of time that can be saved
by ignoring Fed pronouncements. To come to the point: there is not one word
flushed from the Federal Reserve machinery that bears on monetary policy other
than the Fed chairman's propaganda.

Frank advertised his disordered mind on May 3, 2011, by proposing that Federal
Reserve bank presidents not be allowed a vote on the Federal Open Market Committee
(FOMC). Why he hoisted this bludgeon, and why now, are matters
for speculation. Here goes: The obnoxious butterball is up to his eyeballs
in misdeeds including Fannie, Freddie, and favors - and threats - offered in
return for contributions that are a central feature of the Dodd-Frank bill.
He therefore cannot refuse a request from more powerful parties.

Federal Reserve Chairman Ben Bernanke wants the FOMC to report unanimous decisions,
unanimous decisions that are identical to past decisions: zero-interest rates
and full authorization for his open spigot. Regional Federal Reserve presidents
have been giving speeches suggesting that Chairman Bernanke is impoverishing
the 99% of Americans suffocating in the ninth circle. The Powers have decided
bank presidents need to be shut up. Barney got the call: "It's your turn, sport.
Whip up some legislation that will break their kneecaps with a baseball bat."

There is no reality to this. Bernanke faces no opposition. We will come to
that. Frank's proposed legislation stands little chance of passing. Over the
years, neutering the Fed presidents or abolishing the FOMC has been proposed
several times, at a point when vested interests want the Federal Reserve to
cut interest rates. Congressmen Wright Patman, Henry Reuss, and Henry Gonzales
threatened the Fed with dismemberment. In those cases, the politicians walloped
the Fed chairman. Subsequently, the FOMC loosened monetary policy. Inflation
followed. In the present case, the Fed chairman is already goose-stepping to
the cartel's drumbeat. It is FOMC members' voices that are being silenced.

A succinct example is that of Senator Robert Byrd, addressing Federal Reserve
Chairman Paul Volcker on December 18, 1982: "To whom are you accountable?" Volcker: "Well,
the Congress created us and the Congress can uncreate us." Byrd then drafted
a "reform legislation that would give Congress genuine leverage on monetary
policy." (Greider, Secrets of the Temple)

MarketWatch reports Barney Frank defended his motion by claiming Fed
presidents are "totally inconsistent with any kind of theory of democracy." Stalin
had a better appreciation for democracy.

From the Federal Reserve website: "The Federal Open Market Committee (FOMC)
consists of twelve members - the seven members of the Board of Governors of
the Federal Reserve System; the president of the Federal Reserve Bank of New
York; and four of the remaining eleven Reserve Bank presidents, who serve one-year
terms on a rotating basis." The seven governors (by statute: there are currently
five) work at the Eccles building on Constitution Avenue in Washington in offices "with
a wall of bookshelves and a fireplace handsomely faced in black marble, usually
a sofa and chairs around it." (Greider) They are nominated by the President
and approved by the Senate. The politicians do not vote for the regional presidents.
This offers hope of independence given their distance from the City of Central
Planning.

The presidents represent and live in the 12 Federal Reserve districts around
the country (Richmond, Kansas City, Minneapolis, etc.). Thomas Hoenig, president
of the Kansas City branch recently warned a bubble in farm prices may be building.
(See: Kansas
City Fed Chief Sees Farmland Bubble.) As reported at Farmland.com on
April 7, 2011, he is urging the Fed (FOMC) to raise interest rates to save
farmers from the same fate as former homeowners in Las Vegas.

Frank had no idea what he was talking about: "It undermines legitimacy when
you have literally people [sic] who are in the financial industry picking people
to vote on setting interest rates." Thomas Hoenig started working for the Federal
Reserve Bank of Kansas City in 1973, upon graduating from college.

If Frank's proposal were passed, not much would change. The Federal Reserve
presidents are showpieces on the FOMC, other than the New York president, who,
by tradition, behaves like an overweight, bench-warming, third-string, junior-high-school
catcher who yells at the first-stringers for not hustling.

Dallas Federal Reserve President Richard Fisher was quoted in Sidelights
to 1994. Refreshing as it is to read his denouncement of Ben Bernanke's
kleptomania, he does not influence FOMC votes.

During the Greenspan years, the Greenspan Fed was just that. The only renegade
governor was Larry Lindsay. Yet, even Lindsay, who, at every meeting, tenaciously
instructed other FOMC members of how the Fed was disemboweling the middle class,
and who really did understand economics, had no influence when it came
to a vote.

Maybe the Bernanke FOMC is different. (We cannot read FOMC transcripts until
five years after the event. Bernanke has been chairman since January, 2006.)
This is difficult to imagine, since the governors' public statements mimic
Bernanke's calcified dogma - not a word out of place. When dissident presidents
such as Thomas Hoenig (who is not even a voting member of the FOMC) or Charles
Plosser (Philadelphia, who does vote) give speeches that offer hope of sanity,
it is safe to assume their positions are of no consequence to FOMC policy.

Now we come to the real reason Bernanke is the FOMC. Reading dozens
of FOMC transcripts is tedious, but revealing. In the end, it saves time since
one then understands the meaninglessness of the FOMC. (The call comes in: "You
have to watch Laurence Meyer [former Fed governor] debating David Einhorn on
CNBC. You won't believe how stupid Meyer is." Oh no, I know how stupid Meyer
is. But, the temptation to watch the clip is great: Wow, I had forgotten he
was that stupid.)

For those who have not read the transcripts (come on, admit it), it is difficult
to imagine how little is discussed that could influence current policy. The
meetings follow unvarying rituals, as carefully scripted as the Tridentine
Mass.

It is also difficult to convey the most striking observation that comes from
reading thousands of pages from transcripts. That is, the FOMC's lassitude.
The rousing warnings by Fed presidents reverberate within the Cone of Silence.
(In addition to those mentioned above; a round of applause, please, for Jerry
Jordan, Cleveland President; Cathy Minehan, Boston; and Michael Moscow, Chicago;
who badgered Greenspan in the 1990s about the stock market bubble.)

Readers may remember the television show Get Smart, in which the glass
Cone-of-Silence was lowered from the ceiling to prevent Kaos agents (the enemy)
hearing conversations of Control's (our side) secret agents. The Cone-of-Silence
never worked. Control agents couldn't hear each other because their voices
echoed so violently inside the Cone. Likewise, none of the members of the FOMC
syndicate acknowledged the dissidents existence. If the troublemakers had not
shown up, not one word from these Stepford Wives would have changed.

Each FOMC member has a chance to talk at meetings. Greenspan (also a voting
member) would then talk, just before a vote was taken. Usually a vote (on interest
rates or protocol) was taken at each FOMC meeting. Greenspan led the discussants
to his preferred choice, which might be "Alternative A" or "Alternative B."

This understates the irrelevance of the Federal Open Market Committee. Before
each meeting, Greenspan met privately with voting member of the FOMC to ensure
a unanimous vote. (Laurence Meyer, A Term at the Fed).

After Greenspan finished talking, and before the vote, the Vice Chairman of
the FOMC - always the president of the New York Federal Reserve branch - would
speak. William J. McDonough was the New York president and vice chairman of
the FOMC in the late 1990s. Following are the first words out McDonough's mouth
at a succession of meetings, a period when the Greenspan FOMC set a super-loose
policy that led to the finale of the Nasdaq bubble. Yet, their desiccated minds
and faces, the color and texture of a gray, cardboard box after a basement
flood, sat and gathered mildew.

Vice-Chairman McDonough:

August 18, 1998: "Thank you Mr. Chairman. I think your analysis was exactly
right in regard to where we should be with the federal funds rate; that is
Alternative "B."

September 29, 1998: "Mr. Chairman, I want to agree with your proposal to cut
the fed funds rate by 25 basis points."

November 17, 1998: "Thank you, Mr. Chairman. I agree fully and rather enthusiastically
with your recommendation."

December 22, 1998: "Mr. Chairman, I interpret that, as I'm sure you intended,
as a recommendation for "B," symmetric, which I heartily endorse...."

February 2-3, 1999: "Mr. Chairman, I fully support your recommendation."

March 30, 1999: "Mr. Chairman, I not only support but applaud your recommendation."

May 18, 1999: "Mr. Chairman, I fully support your recommendation."

June 29, 1999: On page 64 of the transcript: "Mr. Chairman, I fully support
your conclusions." On page 91 of the transcript: "Mr. Chairman, I fully support
your conclusions."

August 30, 1999: "Mr. Chairman, I fully support your recommendation."

November 16, 1999: "Mr. Chairman, I fully agree with both the reasoning behind
your recommendations and with the recommendation itself."

The vote followed. The Greenspan Alternative almost always received a unanimous
vote. The same is true of Bernanke. Policy set during the reign of Charles
the Simple was more animated.

Sheehan serves as an advisor to investment firms and endowments. He is the
former Director of Asset Allocation Services at John Hancock Financial Services
where he set investment policy and asset allocation for institutional pension
plans. For more than a decade, Sheehan wrote the monthly "Market Outlook" and
quarterly "Market Review" for John Hancock clients.

Sheehan earned an MBA from Columbia Business School and a BS from the U.S.
Naval Academy. He is a Chartered Financial Analyst.